What is audit risk? Different types of audit risk with examples
Audit risk:-
Audit risk is the risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. It is a key concept in auditing and encompasses the possibility that the auditor may fail to detect material misstatements in the financial statements.
Different types of audit risk with examples
There are three types of Audits risks are describes below
01. Inherent risk,
02. Control risk and
03. Detection risk.
03. Inherent risk:
inherent risk is the susceptibility of an assertion to misstatement that could be material, individually or when aggregated with other misstatements, assuming that there was no related internal control.02. Control risk:
This type of risks refers to the risks of misstatements and errors in the company’s financial statements as the company fails to manage its internal controls well.
Sources of control risks:
The management failed to make sure that there is proper segregation of duties between the staff that has their responsibility in financial reporting.03.Detection risk:
This means that the auditor fails to detect the misstatements and errors in the company’s financial statement, and as a result, they issue a wrong opinion on those statements.In finally :
The risk that the auditor expresses an inappropriate audit opinion when the financial statements are materially misstated. It is the product of inherent risk, control risk, and detection risk. Managing and controlling these components of audit risk is essential for auditors to provide reasonable assurance regarding the fairness of the financial statements. The auditor assesses these risks throughout the audit process to design appropriate audit procedures and obtain sufficient and appropriate audit evidence.